Employee complaints about vacation pay rules growing more common, lawyers say

In the wake of high-profile class action lawsuits alleging employers are shirking vacation pay responsibilities, employment lawyers say they’ve been fielding a steady stream of employee complaints about their own employers’ failure to meet the same obligation – one that many employers may not even know they had.

Over the last decade, several employers across the country have been hit with a spate of class actions claiming they violated employment laws when they calculated employees’ vacation pay without taking their total wages – including commissions and bonuses – into account. For example, the Royal Bank of Canada has faced multiple lawsuits on this front in recent years, including a class action against RBC Dominion Securities that was certified by the Ontario Superior Court in late 2022.

Last year, the same court certified a class action employees filed against another division of the bank, RBC Insurance Agency Ltd. Employees at RBC Life Insurance Co., Aviva General Insurance Co., Toronto Dominion Bank, and the Bank of Montreal have filed similar class actions against their employers.

The provincial and federal rules the plaintiffs alleged their employers violated are not new. However, employment lawyers say growing awareness of the vacation pay requirements has made handling complaints about this issue a regular part of their jobs.

“As a result of some of the high-profile cases that are out there, people are now familiar with the state of the law,” says Andrew Bratt, a partner at Gowling WLG who represents employers. Bratt says he’s been seeing a growing number of employee demand letters alleging incorrect vacation pay calculations.

Under the Canada Labour Code, which applies to federally regulated sectors, employers must calculate the vacation pay owed to employees based on their total wages. This includes base pay and specific variable components like commissions and incentive compensation.

Provincially-regulated employers are subject to similar rules. Under Ontario’s Employment Standards Act, employers must give employees vacation pay worth at least 4 percent of their gross wages if they have worked for them for less than five years. When it comes to employees who have been with a company for more than five years, that company must provide vacation pay worth at least 6 percent of the employee’s gross wages. British Columbia’s Employment Standards Act has a similar regime.

Travis Carpenter, an associate at Samfiru Tumarkin LLP who represents both employees and employers, says he’s frequently seen employers violate these rules by drawing up employment agreements that promise workers more vacation pay than the minimum required under the law. Many employers don’t realize the vacation rate stipulated in the contract will apply to the employee’s gross wages – not just their base pay.

“Say that you've got six weeks of vacation included in your agreement – that's equivalent to 12 percent vacation pay. Technically, you should be paid 12 percent vacation pay on all of your wages,” Carpenter says.

“But as far as a bonus is concerned – and say you also got commissions – technically, [your employer] would have to pay you that 12 percent on top of your vacation pay and your commissions,” Carpenter says. “But what I've seen employers do is they'll pay only the minimums under the statute, whether that's 4 percent, 6 percent, or wherever you fall.”

Carpenter says he’s met with many workers who didn’t know they were entitled to vacation pay calculated based on their gross wages. Many of these workers also told him their employers never informed them of this right, but it’s possible these employers didn’t deliberately choose to withhold information.

“I feel like there is a possibility that some employers are doing this maliciously, but I also think there's a possibility that there's a lot of employers that just don't know about this,” he says.

“My thought process is that when people are thinking wages, they're not thinking, ‘Oh, I have to pay you… vacation pay on commission,’” Carpenter adds.

To avoid penalties, he says employers need to understand their obligations under federal and provincial laws and ensure their payroll staff understands them as well. He also says being transparent with employees about what they’re entitled to is key.

“It's not a hard thing to abide by,” Carpenter adds. “Just know that if something is classified as wages, then you're going to have to provide vacation pay on it.”